5 Items for Your Mid-Year Retirement Savings Check-Up

Make sure your 2012 investments are helping you progress toward retirement.

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Independence Day has come and gone, so 2012 is half over. It’s time to do a mid-year review of your retirement portfolio. Most of us tend to set our 401(k) and other retirement savings accounts on autopilot and forget about them. But it’s essential to check up on our retirement investments at least a couple of times per year to make sure they are on track. Here are five key components to examine:

Contributions. The maximum allowable 401(k) contribution is $17,000 in 2012. If you are age 50 or older, you can contribute an extra $5,500. It is best to contribute throughout the year to take advantage of dollar-cost averaging, so each month you can contribute around $1,400. However, most plans don’t let you select a specific contribution amount, but a percentage of your salary instead. Mid-year is the perfect time to check up on the amount of your contribution and see if you are on track to hit $17,000. If you are behind, then consider increasing the salary deduction percentage to maximize the tax advantage of the retirement account. If you are an employee who received a bonus or a big raise early in the year and that extra money is added to the deduction, then you could be on track to max out early. You should take this into account and perhaps reduce the deduction percentage.

Dividends. Check your retirement accounts for dividend payments. Most mutual funds and ETFs pay a dividend once a year in December, but some funds pay out in June or other months. The interest rate on money market accounts is basically zero these days, so the dividend payment won’t earn you much money there. But it’s good to be aware of your money market account’s balance so you can take advantage of the next dip and be ready to reinvest the dividend income.

Net worth. The stock market has been quite volatile in the first half of 2012. Hopefully it didn’t impact your net worth much and you’re still on track for retirement. If you are near retirement and see a big fluctuation in your net worth this year, then perhaps you have too much invested in the stock market and may need to rebalance to get ready for retirement.

Spending. Most of us spend a lot of money on gifts in December and then resolve to reduce spending after the holidays. This usually works well for a few months, but by summertime our spending usually creeps up again. Mid-year is a good time to check if you are sticking to your budget. If you are spending too much money and are not maxed out on your 401(k) contributions yet, then consider increasing the salary deduction percentage. You’ll get used to a little less cash in the bank and hopefully spend less money accordingly.

Resolutions. See how you are doing with your New Year’s goals and resolutions. You did write them down, didn’t you? That’s one of the keys to completing those resolutions. If there are things you’re behind on, you can refocus and concentrate on finishing them off. Two of my goals are to eat healthy and exercise more, and both have been on the slide over the last couple of months. Checking up on these goals reminded me to refocus and get back on track.

Although the year is half over, it’s not too late to make mid-year adjustments. These things only take a little time, and your future self will be glad you didn’t ignore them.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.